During the January 7, 2021 Markets Subcommittee (MSC) meeting, MISO discussed impacts and outcomes of administrative pricing during force majeure events. MISO is requesting feedback on administrative pricing during such events.
Please provide feedback by January 28.
WEC Energy Group provides the following feedback on the administrative pricing issue statement:
Market prices and market outcomes, including uplift charges, during local transmission system emergencies, including force majeure events, should incent proper Market Participant behavior through pricing that reflects the value of energy during those times, not send a price signal to nodes physically unable to respond (dead-buses) and assign related costs to Market Participants within the emergency area.
MEAN, MGE, MPPA, and Wolverine generally support WPPI Energy's feedback, but MEAN would offer a slightly edited version of the following bullet point for completeness (especially given that transmission emergencies can become capacity emergencies):
Thanks,
David Sapper
dsapper@ces-ltd.com
WPPI notes this feedback request is quite open (“MISO is requesting feedback on administrative pricing during such [force majeure] events”), whereas the presentation indicated a couple of specific areas for feedback (0210107 MSC Item 04 August 27 Max Gen Discussion, s. 8: draft issue statement, additional questions and considerations). Addressing the specifics provided in the presentation:
(1.) S. 6 “Issue Statement drafting: Market prices and market outcomes, including uplift charges, during local transmission system emergencies, including force majeure events, should…”
• 1st, at a minimum, WPPI thinks the impact of events such as Hurricane Laura (8/27/2020) on MISO settlements merits MISO and stakeholder review, in particular the very large Revenue Neutrality Uplift charges.
• 2nd, WPPI thinks the role of an issue statement is to provide a clear description of the issue or problem to be explored. One option to complete the draft issue statement would be: should appropriately charge load and compensate resources.
(2.) Additional questions and considerations
• It seems to WPPI that the “Issue Statement considerations” on s. 5 are more relevant to an exploration of the issue and the consideration of possible changes than to drafting an issue statement.
• Instead of focusing solely on local transmission emergencies and force majeure events, WPPI is inclined to review the underlying concepts and not presume the only opportunities for enhancement concern local transmission emergencies and force majeure events. WPPI has identified three underlying concepts: Dead Bus Logic, the application of the Value of Lost Load, and the further identification of cost causers during a capacity emergency.
• It is WPPI’s understanding that the discussion of VOLL at the MSC will include a review of its application. e.g., 20210122 Scarcity Pricing Evaluation Workshop Item 05 Value of Lost Load, s. 2: “VOLL has not been updated since 2009 and a review/analysis is appropriate, along with consideration of its use.” How will the existing and ongoing discussion of VOLL interact with the proposed new “force majeure” issue?
Comments of the Coalition of MISO Transmission Customers, the Association of Businesses Advocating Tariff Equity, the Illinois Industrial Energy Consumers, the Louisiana Energy Users Group, the Texas Industrial Energy Consumers, the NIPSCO Large Customer Group, the Midwest Industrial Customers, and Alcoa Power Generating Inc. Regarding the Application of Value of Lost Load Pricing During Force Majeure Events
Re: January 7, 2021 MISO Market Subcommittee Request for Stakeholder Feedback
Introduction
During the January 7, 2021 MISO Markets Subcommittee (“MSC”) meeting, MISO discussed impacts and outcomes of administrative pricing during force majeure events, such as the August 27, 2020 Maximum Generation Event (“Max Gen Event”) triggered by Hurricane Laura’s landfall in Texas and southwest Louisiana and associated damage to and outages on transmission, generation, and distribution systems. Due to transmission system conditions and limited generation capacity in a portion of the WOTAB Reserve Zone, MISO declared an Energy Emergency Event and directed firm load shedding to balance supply and demand for eleven hours.[1] MISO corrected real time prices after the fact and set those prices to the Value of Lost Load (“VOLL”), $3,500/MWh, resulting in the allocation of $90 million in balancing congestion and shortfalls to all MISO loads on a pro rata basis.
MISO requests feedback from stakeholders on the use of administrative pricing during local transmission system emergencies, including force majeure events. Specifically, MISO seeks assistance with the drafting of an Issue Statement that begins: “Market prices and market outcomes, including uplift charges, during local transmission system emergencies, including force majeure events, should…”[2]
The Coalition of MISO Transmission Customers, the Association of Businesses Advocating Tariff Equity, the Illinois Industrial Energy Users Consumers, the Louisiana Energy Users Group, the Texas Industrial Energy Consumers, the NIPSCO Large Customer Group, the Midwest Industrial Customers, and Alcoa Power Generating Inc. (together, “Industrial Customers”) appreciate the opportunity to submit comments to MISO.
Comments
The Industrial Customers recognize the challenges associated with the August 27, 2020 Max Gen Event and appreciate MISO’s efforts to ensure safety by employing load shedding in the wake of significant transmission system damage, and to subsequently coordinate restoration efforts.
MISO explains that it acted pursuant to its Tariff when it corrected real time prices after the fact for the August 27, 2020 Max Gen Event and then set those prices to VOLL, $3,500/MWh, at all buses in the impacted area, including dead buses, resulting in the allocation of $90 million in balancing congestion and shortfalls to all MISO loads on a pro rata basis. Specifically, MISO explained that it acted pursuant to the following Module C Tariff provisions:
The Industrial Customers submit that the post hoc application of VOLL pricing at $3,500/MWh in a force majeure scenario is unjust and unreasonable because it does not provide a real time price signal to which customers are able to respond in time to reduce or shed load. During the Max Gen Event, pricing was not applied in real time due to an error in MISO’s software and modeling challenges. Specifically, MISO was not able to price the Hurricane Laura Load Pocket until a week into September.[4] Accordingly, customers did not have a real time price signal to which they could adequately respond. Had customers known that VOLL pricing at $3,500/MWh would have been applied after the fact, customers may have attempted to reduce or shed load.
During the January 7, 2021 MSC meeting, MISO also raised a question as to whether the current cost allocation of Real-Time Excess Congestion or Revenue Sufficiency Guarantee Payments aligns with cost causation and beneficiary-pays principles.[5] Before considering whether there are any issues that potentially need to be addressed regarding how any uplift is cost allocated, there is the more fundamental problem of MISO’s post hoc application of VOLL pricing, which is inconsistent with MISO’s market design, assumptions, and incentives.
The purpose of employing VOLL pricing is to incent a price response from generators to provide additional power to the system during emergency conditions and a price response from loads to curtail during such conditions. This purpose cannot be served when VOLL pricing is applied on an ex post basis, as this denies generators and loads the opportunity to respond to such price signals in real-time, in a manner that could assist MISO in managing the system emergency. Moreover, force majeure events such as Hurricane Laura can result in significant infrastructure damage that physically prevents generators located inside the impacted market sub-area through no fault of their own from either meeting their day-ahead cleared generation levels or providing additional generation to the sub-area, even if VOLL pricing had been applied on an ex ante basis. In particular, MISO’s application of VOLL pricing to dead buses can result in the application of large penalties to generation and large rewards to load without incenting any helpful price response, as generation and load at these dead buses are not capable of providing any additional generation or load curtailment that could assist MISO in managing the system emergency.
For all of these reasons, MISO should reevaluate and revise its policies with respect to the application of VOLL pricing for future force majeure events. Specifically, MISO should not apply VOLL pricing in situations where generation and load is physically incapable of responding to the price signal. In particular, MISO should not apply such pricing on an after the fact basis and it should not apply such pricing to dead buses.
MISO should clearly define in the Tariff the scope of potential emergency conditions that currently authorize MISO to set the following prices to VOLL until the emergency conditions are no longer in effect: Real-Time Ex Ante Locational Marginal Prices (“LMPs”), Real-Time Ex Ante Market Clearing Prices (“MCPs”), Real-Time Ex Post LMPs, and Real-Time Ex Post Operating Reserve MCPs.[6] As necessary, MISO should re-examine its definitions of Emergency, Emergency System Conditions, and Maximum Generation Emergency in Module A of the Tariff, along with the business practice manuals implementing the associated procedures for addressing system emergencies. MISO should also reexamine the definition of force majeure in Section 10.1 of its Tariff.
To understand this issue further, MISO should determine the pricing that would have occurred without using VOLL pricing for the August 27, 2020 Max Gen Event. The Industrial Customers understand that, in response to a stakeholder request during the January 7, 2020 MSC, MISO is determining the amount of uplift that would have occurred had VOLL pricing not been applied. The amount of uplift and necessary make whole payments to generation and demand resources absent the application of VOLL is likely much less than the $90 million that was allocated to all load across the entire footprint under VOLL pricing. This expectation should be confirmed.
Issue Statement
The Industrial Customers recommend the use of the following Issue Statement:
Market prices and market outcomes, including uplift charges, during local transmission system emergencies and force majeure events, must be just, reasonable, and not unduly discriminatory or preferential. The post hoc application of Value of Loss Load (“VOLL”) pricing during a force majeure emergency event, including the application of such pricing to dead buses, is not appropriate because it prevents customers and the market from being able to respond to price signals in real time. Moreover, the application of VOLL pricing to dead buses that are not capable of providing a price response serves no purpose other than to inflate the cost of force majeure events to loads in the MISO footprint. Such VOLL pricing, to the extent possible, should adhere to MISO’s market design, assumptions, and incentives.
MISO will explore necessary changes to its Tariff and Business Practice Manuals to ensure that market prices and market outcomes, including uplift charges and the application of VOLL pricing, during local transmission system emergencies, including force majeure events, are just, reasonable, and not unduly discriminatory or preferential.
Pricing measures that MISO undertakes in response to transmission system emergencies and force majeure events will be transparent and will reflect MISO’s cornerstones of customer service, effective communication, and operational excellence.
Conclusion
The Industrial Customers respectfully ask MISO to consider these comments in determining the Issue Statement and next steps for MISO’s investigation of VOLL and administrative pricing in the context of localized transmission system emergencies and force majeure events. Thank you again for providing us an opportunity for providing these comments. If you have any questions concerning our comments, please do not hesitate to contact:
Jim Dauphinais
Brubaker & Associates, Inc.
(Consultants to ABATE, IIEC, LEUG, NLCG and TIEC)
(636) 898-6725
Ali Al-Jabir
Brubaker & Associates, Inc.
(Consultants to ABATE, IIEC, LEUG, NLCG and TIEC)
(361) 994-1767
Kevin Murray
Ken Stark
McNees Wallace & Nurick LLC (for CMTC)
(614) 719-2844
Kavita Maini
KM Energy Consulting, LLC (Consultants to MIC)
(262) 646-3981
Steve Dowell
Alcoa Power Generating Inc.
(812) 842-3377
Date: January 28, 2021
[1] MISO January 7, 2021 MSC Presentation at Slide 3.
[2] MISO January 7, 2021 MSC Presentation at Slide 3.
[3] See MISO Joint MSC/RSC October 1, 2020 Meeting (updated Oct. 22, 2020), Appendix (Tariff and BPM References).
[4] IMM January 7, 2021 MSC Presentation at Slide 5.
[5] MISO January 7, 2021 MSC Presentation at Slide 4.
[6] See MISO Tariff, Module C, Section 40.2.20.b (iii).
DTE Energy appreciates this opportunity to provide feedback on the important topic of price formation and how MISO’s pricing constructs should be refined in light of the lessons learned from the Hurricane Laura load shed event. With respect to the feedback prompt from MISO, DTE proposes the following issue statement:
“Market prices and market outcomes, including uplift charges, during local transmission system emergencies, including force majeure events, should recognize the reliability value of energy provided during those times, incentivize behaviors that support system reliability while respecting system and operational constraints, and assign the resulting costs exclusively to cost causers/beneficiaries.”
In addition to the feedback above on the administrative pricing issue statement, DTE also supports adding the three VOLL-related Integrated Roadmap items to this year’s MSC management plan, rather than waiting until the 2022 management plan.
Shell Energy North America (US), L.P. appreciates the opportunity to comment on the implications of MISO’s August 27, Maximum Generation Event. In consideration of issue statement drafting, it is important to view proposals and solutions in the context of MISO’s Emergency Pricing and Scarcity Pricing initiatives (i.e. VOLL). Questions and analysis that the issue statement should consider in addition to what was presented at the January 7th, 2021, Market Subcommittee, are suggested as follows:
MidAmerican Energy Company appreciates this opportunity to comment on an issue statement for administrative pricing. We’ve generally defined the issue via a series of questions to be addressed.
Value Of Lost Load (VOLL)
What is an appropriate Value of Lost Load?
Application of VOLL prices
Should VOLL prices be established in situations where they result in no actionable price signal, including situations where:
Stated a bit differently - what’s worse: relaxing VOLL price signals in the emergency region in order to avoid the poor region-wide price signals that accompany uplift? Or accepting significant region‑wide uplift in order to apply administratively‑determined VOLL price signals in the emergency region?
If VOLL pricing is appropriate despite creating uplift, then is the current allocation of that uplift appropriate?
(MidAmerican’s initial thought is that VOLL pricing should not apply to generation and load that’s been physically disconnected from the system due to an act of nature and is not physically capable of reconnecting to the system.)
Inter‑regional pricing
Under emergency / scarcity conditions, Market Participants should receive consistent inter‑regional price signals. Market Participants should receive appropriate incentives to transact with neighboring regions compared to transacting within their local region. Scarcity conditions have been exacerbated in the past when Market Participants received volatile price signals to transact, or cease transacting, with surrounding markets.
Dead bus logic
Is MISO’s dead bus logic adequate when there exists significant price separation between nearby “live” buses?
VOLL pricing created such price separation in the aftermath of Hurricane Laura, but there are other potential causes of price separation that could significantly affect the prices at dead buses. When a dead bus is, say, equidistant between two live buses having significantly different prices, the choice of which price to use is largely arbitrary; there exists no physical reason to choose the price at one live bus vs. the price at the other live bus.